Lloyds Bank's plan to save £1bn by freezing pensions comes under fire

LLoyds Bank has told staff their pensions will be linked to pay on 2 April this year instead of their final salary

Lloyds Bank’s move to freeze workers’ pensions has been described as ‘a disgraceful display of double standards’ after it paid £568,000 into the pension pot of its chief executive. Photograph: Peter Macdiarmid/Getty Images

Lloyds Bank is to book a profit of £1bn after freezing the pensions of 32,000 workers, provoking accusations of "a disgraceful display of double standards" after it paid £568,000 into the pension pot of its chief executive last year.

The bank has told staff that rather than basing pensions on their final salary at retirement, pensions will instead be linked to the level of the employee's pay on 2 April this year. It means that regardless of how many more years they work, or any promotions and pay rises they receive, staff will see their pensions calculated based on their pay on 2 April 2014.

The change could provoke strike action at Lloyds, which is 32% owned by the taxpayer. Accord, the union with most members at Lloyds, said the pension change was "potentially robbing staff of tens of thousands and, in some cases, even hundreds of thousands of pounds over their lifetimes" and that the move could lead to a formal ballot of members at its annual conference next week to begin industrial action.

But Lloyds said the freeze would make pension payouts more balanced across the group, particularly as two-thirds of its workers are not part of the final-salary scheme. The Lloyds scheme, with assets of £32.6bn, is one of the largest in the UK, but has a deficit of £998m – almost precisely equal to the sum the bank is saving by freezing benefits.

The savings for the bank are so high because long-serving staff have their pension calculated as a proportion of the number of years they work. If someone is earning £20,000 a year, they are currently entitled to a maximum potential pension of £13,200 a year. In the past, if they had been promoted to, say, a salary of £30,000 a year, their potential pension would have risen to £19,800 a year, but it will now be pegged at the lower level. Most of those affected are understood to be women employees who joined Lloyds Group when it acquired HBOS.

To sweeten the deal, Lloyds is making a lump sum payment worth 3% of salary to affected workers.

But the timing of the changes, coming shortly after Lloyds handed out more than £12m in share bonuses to senior bankers, has ignited fresh controversy over pay and bonuses. Unite's national officer, Rob MacGregor, said: "This is a disgraceful display of double standards. The taxpayer-supported bank has doubled its profits, but it is attacking thousands of ordinary workers' pensions while splashing out on huge bonuses for its senior bankers. Somehow the money runs out when it comes to the pensions of staff earning just £15,000 per year."

In a statement, Lloyds said: "The group believes that while the defined benefit schemes remain an important part of employees' benefit package, the announced change represents the right balance between providing fairer pension benefits to all colleagues and managing the group's capital and risk position.

"The current estimated effect of the change is a one-off benefit of around £1bn to the income statement, which would be recognised in the second quarter outside of underlying profit."

Last week, Lloyds gave its boss, António Horta Osório, almost £1m in shares to sidestep new rules from Brussels designed to clamp down on bankers' pay.

The handouts, which have become known in the City as "allowances", will be given to 75 bankers at Lloyds including the chief executive, whose allowance will amount to approximately £18,000 a week, after receiving a total pay package of £7.5m last year.

The bank has asked shareholders including the Treasury for permission to pay the maximum bonuses allowable under the Brussels rules of 200% of salary.